Obbligazione Apex Group Inc. 8.75% ( US00213MAD65 ) in USD

Emittente Apex Group Inc.
Prezzo di mercato 100 USD  ▲ 
Paese  Stati Uniti
Codice isin  US00213MAD65 ( in USD )
Tasso d'interesse 8.75% per anno ( pagato 2 volte l'anno)
Scadenza 30/11/2020 - Obbligazione č scaduto



Prospetto opuscolo dell'obbligazione APX Group Inc US00213MAD65 in USD 8.75%, scaduta


Importo minimo 2 000 USD
Importo totale 705 000 000 USD
Cusip 00213MAD6
Standard & Poor's ( S&P ) rating N/A
Moody's rating N/A
Descrizione dettagliata APX Group Inc. č una societā tecnologica americana specializzata nella fornitura di soluzioni di gestione dell'energia e di infrastrutture per smart grid.

The Obbligazione issued by Apex Group Inc. ( United States ) , in USD, with the ISIN code US00213MAD65, pays a coupon of 8.75% per year.
The coupons are paid 2 times per year and the Obbligazione maturity is 30/11/2020







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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-193639

Offer to Exchange


$250,000,000 aggregate principal amount of 8.75% Senior Notes due 2020 (the "exchange notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"), for any and all outstanding $250,000,000
aggregate principal amount of 8.75% Senior Notes due 2020 that were issued on December 13, 2013 (the "outstanding 2020
notes"). Prior to the sale and issuance of the outstanding 2020 notes, there were $580.0 million aggregate principal amount of
8.75% Senior Notes due 2020 already outstanding under the indenture (the "existing registered 2020 notes"). The exchange
notes will be treated as a single class with the existing registered 2020 notes. The exchange notes, the outstanding 2020 notes
and the existing registered 2020 notes are collectively referred to herein as the "2020 notes."
The exchange notes will be fully and unconditionally guaranteed, jointly and severally, on a senior basis, by APX Group
Holdings, Inc., our parent company, and each of our existing and future material wholly-owned U.S. restricted subsidiaries to
the extent such entities guarantee indebtedness under our revolving credit facility or our other indebtedness or indebtedness
of any subsidiary guarantor as described therein.
We are conducting the exchange offer in order to provide you with an opportunity to exchange your unregistered
outstanding 2020 notes for freely tradeable exchange notes that have been registered under the Securities Act.


The Exchange Offer
· We will exchange all outstanding 2020 notes that are validly tendered and not validly withdrawn for an equal principal amount of
exchange notes that are freely tradeable.
· You may withdraw tenders of outstanding 2020 notes at any time prior to the expiration date of the exchange offer.
· The exchange offer expires at 5:00 p.m., New York City time, on March 6, 2014 which is the 21st business day after the date of
this prospectus.
· The exchange of outstanding 2020 notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal
income tax purposes.
· The terms of the exchange notes to be issued in the exchange offer are substantially identical to the outstanding 2020 notes, except
that the exchange notes will be freely tradeable.
Results of the Exchange Offer:
· The exchange notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of such
methods. We do not plan to list the exchange notes on a national market.
All untendered outstanding 2020 notes will continue to be subject to the restrictions on transfer set forth in such outstanding 2020
notes and in the indenture governing the 2020 notes. In general, the outstanding 2020 notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register
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the outstanding 2020 notes under the Securities Act.


You should carefully consider the "Risk Factors" beginning on page 19 of this prospectus before
participating in the exchange offer.
Each broker dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge
that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker dealer in connection with resales of exchange notes received in
exchange for outstanding 2020 notes where such outstanding 2020 notes were acquired as a result of market making activities
or other trading activities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the
exchange notes to be distributed in the exchange offer or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this prospectus is February 4, 2014.
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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with
different information. This prospectus may be used only for the purposes for which it has been published and no person has
been authorized to give any information not contained herein. If you receive any other information, you should not rely on it.
We are not making an offer of these securities in any state where the offer is not permitted.


TABLE OF CONTENTS


Page
Forward-Looking Statements
ii

Market, Ranking and Other Industry Data
iii

Trademarks
iii

Basis of Presentation
iii

Prospectus Summary
1

Risk Factors
19

The Transactions and 2013 Notes Offerings
38

Use of Proceeds
39

Capitalization
40

Unaudited Pro Forma Financial Information
41

Selected Historical Consolidated Financial Information
46

Management's Discussion and Analysis of Financial Condition and Results of Operations
48

Industry
79

Business
80

Management
91

Security Ownership of Certain Beneficial Owners And Management
109
Certain Relationships and Related Party Transactions
111
Description of Other Indebtedness
114
Description of the Notes
118
The Exchange Offer
187
Certain U.S. Federal Income Tax Considerations
197
Certain ERISA Considerations
198
Plan of Distribution
200
Legal Matters
201
Experts
201
Where You Can Find More Information
201
Index to Consolidated Financial Statements
F-1

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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding, among other things, our plans, strategies and prospects, both
business and financial. These statements are based on the beliefs and assumptions of our management. Although we believe that our
plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you
that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks,
uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning our possible or
assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be
preceded by, followed by or include the words "believes," "estimates," "expects," "projects," "forecasts," "may," "will," "should,"
"seeks," "plans," "scheduled," "anticipates" or "intends" or similar expressions.
Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which
speak only as of this date hereof. You should understand that the following important factors, in addition to those discussed in "Risk
Factors" and elsewhere in this prospectus, could affect our future results and could cause those results or other outcomes to differ
materially from those expressed or implied in our forward-looking statements:

·
risks of the security and home automation industry, including risks of and publicity surrounding the sales, subscriber

origination and retention process;

·
the highly competitive nature of the security and home automation industry and product introductions and promotional

activity by our competitors;


·
litigation, complaints or adverse publicity;

·
the impact of changes in consumer spending patterns, consumer preferences, local, regional, and national economic

conditions, crime, weather, demographic trends and employee availability;


·
adverse publicity and product liability claims;

·
increases and/or decreases in utility and other energy costs, increased costs related to utility or governmental requirements;

and


·
cost increases or shortages in security and home automation technology products or components.
In addition, the origination and retention of new subscribers will depend on various factors, including, but not limited to, market
availability, subscriber interest, the availability of suitable components, the negotiation of acceptable contract terms with subscribers,
local permitting, licensing and regulatory compliance, our ability to manage anticipated expansion and to hire, train and retain
personnel, the financial viability of subscribers and general economic conditions.
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this
prospectus are more fully described in "Risk Factors" and elsewhere in this prospectus.
The risks described in "Risk Factors" are not exhaustive. Other sections of this prospectus describe additional factors that could
adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to
which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking
statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety
by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.

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MARKET, RANKING AND OTHER INDUSTRY DATA
Market, ranking and industry data used throughout this prospectus, including statements regarding subscriber acquisition costs,
attrition and adoption rates, is based on the good faith estimates of management, which in turn are based upon management's review
of internal surveys, independent industry surveys and publications, including reports by ABI Research, Barnes Associates, Parks
Associates and other third-party research and publicly available information. Although we believe that these third-party sources are
reliable, we do not guarantee the accuracy or completeness of this information and have not independently verified it. Similarly,
internal company surveys, while believed by us to be reliable, have not been verified by any independent sources.
TRADEMARKS
Vivint and related marks are registered trademarks or trademark applications of Vivint, Inc. Any trademarks, trade names or
service marks of other companies appearing herein, or appearing in information incorporated by reference herein, are the property of
their respective owners.
BASIS OF PRESENTATION
On November 16, 2012, APX Group, Inc. and two of its historical affiliates, V Solar Holdings, Inc. ("Solar") and 2GIG
Technologies, Inc. ("2GIG"), were acquired by an investor group (collectively, the "Investors") comprised of certain investment
funds affiliated with Blackstone Capital Partners VI L.P. ("Blackstone" or the "Sponsor"), and certain co-investors and management
investors. This acquisition was accomplished through certain mergers and related reorganization transactions (collectively, the
"Merger") pursuant to which each of APX Group, Inc., Solar and 2GIG became indirect wholly-owned subsidiaries of 313
Acquisition LLC ("Acquisition LLC"), an entity wholly-owned by the Investors. Upon the consummation of the Merger, APX Group,
Inc. and 2GIG became consolidated subsidiaries of APX Group Holdings, Inc. ("Holdings" or "Parent Guarantor"), which in turn is
wholly-owned by APX Parent Holdco, Inc., which in turn is wholly-owned by Acquisition LLC, and Solar became a direct
wholly-owned subsidiary of Acquisition LLC. Acquisition LLC, APX Parent Holdco, Inc. and Parent Guarantor have no independent
operations and were formed for the purpose of facilitating the Merger.
The Merger, the equity investment by the Investors, entering into our revolving credit facility and $10.0 million of borrowings
thereunder, the issuance of the $925.0 million aggregate principal amount of 6.375% Senior Secured Notes due 2019 (the "2019
notes") and the $380.0 million aggregate principal amount of the 2020 notes and the payment of related fees and expenses are
collectively referred to in this prospectus as the "Transactions." For a more complete description of the Transactions see "The
Transactions and 2013 Notes Offerings" and "Description of Other Indebtedness." In May 2013, we issued and sold an additional
$200.0 million aggregate principal amount of the 2020 notes. That offering is referred to in this prospectus as the "May 2013 Notes
Offering." In December 2013, we issued and sold $250.0 million aggregate principal amount of the outstanding 2020 notes, which are
the subject of this exchange offer. That offering is referred to in this prospectus as the "December 2013 Notes Offering" (and together
with the May 2013 Notes Offering, the "2013 Notes Offerings").
Unless the context suggests otherwise, references in this prospectus to "Vivint," the "Company," "we," "us" and "our" refer
(1) prior to the Merger, to APX Group, Inc. and its subsidiaries and 2GIG and Solar, which were consolidated variable interest
entities prior to the Merger and (2) after the Merger, to the Parent Guarantor and its subsidiaries, including 2GIG to the date of the
2GIG Sale (as defined below). References to the "Issuer" refer to APX Group, Inc., exclusive of its subsidiaries. References to
"Parent Guarantor" refer to Holdings, exclusive of its subsidiaries.
Our historical and pro forma results of operations prior to the Merger include the results of Solar which was considered a
variable interest entity. As a result of the Merger, Solar is no longer dependent upon us for ongoing

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financial support and we are no longer its primary beneficiary. Accordingly, Solar is no longer required to be included in the
consolidated financial statements of the Company. In addition, the historical and pro forma financial information included in this
prospectus include the results of 2GIG up through April 1, 2013, which was the date we completed the sale of 2GIG and its
subsidiary (the "2GIG Sale") to Nortek, Inc ("Nortek"). In connection with the 2GIG Sale, we entered into a five-year supply
agreement with 2GIG, pursuant to which they will be the exclusive provider of our control panel requirements, subject to certain
exceptions as provided in the supply agreement. Due to our continued involvement with 2GIG under the supply agreement, it is not
considered a discontinued operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations
--Recent Transactions." Solar and 2GIG do not and will not provide any credit support for any of our indebtedness, including
indebtedness incurred under our revolving credit facility, our 2019 notes or our 2020 notes.
The consolidated financial statements for periods preceding the Merger are presented for APX Group, Inc. and its
wholly-owned subsidiaries, as well as Solar, 2GIG and their respective subsidiaries (the "Predecessor Period" or "Predecessor" as
context requires). The consolidated financial statements for periods succeeding the Merger present the financial position and results
of operations of Parent Guarantor and its wholly-owned subsidiaries ("the Successor Period" or "Successor" as context requires).
The audited consolidated financial statements for the year ended December 31, 2012 are presented for two periods: the Predecessor
Period from January 1, 2012 through November 16, 2012 and the Successor Period from November 17 through December 31, 2012
which relate to the period preceding the Merger and the period succeeding the Merger, respectively. The financial positions and
results of the Successor are not comparable to the financial position and results of the Predecessor due to the Merger and the
application of purchase accounting in accordance with Accounting Standards Codification ("ASC") 805 Business Combinations.
The unaudited pro forma statement of operations for the year ended December 31, 2012 ("Pro Forma Year") has been prepared
to give pro forma effect to the Transactions as if they had occurred on January 1, 2012. The unaudited pro forma consolidated
statement of operations data included in this prospectus does not give effect to the 2013 Notes Offerings.
The pro forma financial information is for informational purposes only and should not be considered indicative of actual results
that would have been achieved had the Transactions actually been consummated on the dates indicated and do not purport to indicate
results of operations as of any future date or for any future period. See "Unaudited Pro Forma Financial Information."
The term "attrition" as used in this prospectus refers to the aggregate number of cancelled subscribers during a period divided
by the monthly weighted average number of total subscribers for such period. Subscribers are considered cancelled when they
terminate in accordance with the terms of their contract, are terminated by us or if payment from such subscribers is deemed
uncollectible (120 days past due). Sales of contracts to third parties and certain subscriber residential moves are excluded from the
attrition calculation. The term "CAGR" as used in this prospectus refers to the compound annual growth rate over the specified
period. The term "net subscriber acquisition costs" as used in this prospectus refers to the gross costs to generate and install a
subscriber net of any fees collected at the time of the contract signing. The term "IRR" means the internal rate of return per subscriber
calculated based on our estimates and assumptions related to net subscriber acquisition cost per subscriber, net servicing cost per
subscriber, average RMR per new subscriber and attrition. The term "RMR" is the recurring monthly revenue billed to a subscriber.
The term "total RMR" is the aggregate RMR billed to all subscribers. The term "total subscribers" is the aggregate number of our
active subscribers at the end of a given period. The term "average RMR per subscriber" is the total RMR divided by the total
subscribers. This is also commonly referred to as Average Revenue per User, or "ARPU." The term "average RMR per new
subscriber" is the aggregate RMR for new subscribers originated during a period divided by the number of new subscribers
originated during such period.
Totals in some tables in this prospectus may differ from the sum of individual amounts in those tables due to rounding. Unless
specified otherwise, amounts in this prospectus are presented in U.S. dollars.
Defined terms in the financial statements have the meanings ascribed to them in the financial statements.

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PROSPECTUS SUMMARY
This summary highlights selected information appearing elsewhere in this prospectus. Because it is a summary, it may
not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the
information set forth under the heading "Risk Factors" and our financial statements. Before participating in the exchange
offer, you should read the discussion under "Basis of Presentation" above for the definition of certain terms used in this
prospectus and a description of certain transactions and other matters described in this prospectus.
Company Overview
We are one of the largest residential security solutions companies and one of the largest and fastest-growing home
automation services providers in North America. In February 2013, we were recognized by Forbes magazine as one of America's
Most Promising Companies. Our fully integrated and remotely accessible residential services platform offers subscribers a suite
of products and services that includes interactive security, life-safety, energy management and home automation. We utilize a
scalable "direct-to-home" sales model to originate the majority of our new subscribers, which allows us control over our net
subscriber acquisition costs. We have built a high-quality subscriber portfolio, with an average credit score of 717, through our
underwriting criteria and compensation structure. Unlike many of our competitors, who generally focus on either subscriber
origination or servicing, we originate, install, service and monitor our entire subscriber base, which allows us to control the
overall subscriber experience. We seek to deliver a quality subscriber experience with a combination of innovative development
of new products and services and a commitment to customer service, which together with our focus on originating high-quality
new subscribers, has enabled us to achieve attrition rates that are historically at or below industry averages. Utilizing this model,
we have built a portfolio of approximately 803,000 subscribers, as of September 30, 2013. Approximately 83% and 91% of our
revenues during the Pro Forma Year ended December 31, 2012 and the nine months ended September 30, 2013, respectively,
consisted of contractually committed recurring revenues, which have historically resulted in consistent and predictable operating
results.
We believe our sales model allows us to originate subscribers at a lower net subscriber acquisition cost (as a multiple of
RMR) and achieve a higher adoption rate of new service packages compared to many of our competitors. We have generated the
majority of our new subscribers through our direct-to-home sales channel, which uses teams of trained seasonal sales
representatives. In this channel we have historically employed between 2,000 and 2,500 sales representatives and approximately
1,000 installation technicians, who are both largely commission based and deployed in targeted geographical locations. This
results in a highly variable cost structure, subscriber density and the ability to complete same-day installations. We diversify our
subscriber origination efforts with an "inside sales" channel, which includes our internal-sales call centers, TV, radio, internet
and other media advertising, as well as third-party lead generators.
We use underwriting policies that focus on creating a high-quality subscriber portfolio with an attractive return profile with
an unlevered IRR of approximately 24%. As of September 30, 2013, approximately 94% of our subscribers had a FICO score of
625 or greater, and the average FICO score of our portfolio is 717. In addition, over 82% of our new subscribers in 2012 paid
activation fees and approximately 88% of subscribers pay their monthly bill electronically. We believe that originating
high-quality subscribers and our commitment to customer service increases retention which leads to predictable cash flows.
Our business generates positive cash flows from ongoing monitoring and service revenues which we choose to reinvest in
new subscriber acquisitions. During the Pro Forma Year ended December 31, 2012 and the nine months ended September 30,
2013, we generated $450.4 million and $368.2 million, respectively, in total revenue, including $373.6 million and $334.3
million, respectively, in monitoring revenue. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."


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Products and Service Packages
Our products and service packages allow subscribers to remotely control, monitor and manage the security, life-safety,
video, lighting and HVAC systems within their homes. Since January 2010, substantially all of the systems we have installed are
interactive and home automation enabled. Each of our service packages has a differentiated set of equipment and functionality.
Historically, we have offered contracts to subscribers ranging in length from 36 to 60 months that are subject to automatic
renewals after the expiration of the initial term. We offer four service packages: Interactive Security, Energy Management,
Security Plus and Home Automation.

·
Interactive Security. Our Interactive Security service package includes two options: Basic and Advanced. This
service package provides subscribers with residential security monitoring, wireless intrusion monitoring, motion
detectors, smoke and carbon monoxide alarms, emergency alerts and, with the Advanced Interactive Security option,
non-emergency alerts. The current standard price of the Interactive Security service package varies by option between
$44.99 and $49.99 per month and includes our Go!Control panel, three door or window sensors, a motion detector, a

key fob and a yard sign. Subscribers can select additional equipment, such as glass-break detectors, and safety devices,
including smoke and carbon monoxide detectors and personal panic pendants, to customize the systems for their
particular needs. Like all of our home services, subscribers can operate the system remotely through a smart phone
application or a web browser. Subscribers using the Advanced Interactive Security option can also set non-emergency
text alerts for any activity such as the opening of doors or windows. All equipment in the Interactive Security service
package is connected through a wireless infrastructure to our two UL listed redundant central monitoring stations.

·
Energy Management. Our Energy Management service package provides subscribers the ability to monitor, control
and conserve energy usage through our Go!Control panel or remotely through a smart phone application or a web
browser. The current standard price of the Energy Management service package is $57.99 per month and includes a

smart thermostat, a lamp or appliance control and 12 energy efficient light bulbs, in addition to all of the services that
are included with our Advanced Interactive Security. Our Go!Control panel enables interaction between motion
sensors, automatic door locks, thermostats and lighting to adjust settings based on movement and occupancy.
Controlling energy usage allows subscribers to conserve energy, thus reducing their energy bills.

·
Security Plus. Our Security Plus service package combines all of the products that are included with our Advanced
Interactive Security as well as a door lock and video camera. Security Plus provides subscribers with the ability to

remotely manage their security and automatic door locks as well as the ability to remotely monitor activity in the home
through video surveillance and text alerts. The current standard price of the Security Plus service package is $60.99
per month.

·
Home Automation. Our Home Automation service package is a fully integrated suite of home services that connects
various in-home technologies all through a single platform. The current standard price of the Home Automation service
package is $68.99 per month and includes all of the services that are included with the Advanced Interactive Security,

Energy Management and Security Plus service packages. Subscribers can choose additional video cameras and door
locks to customize the package. Our Home Automation service package was rated "Best Buy" in Consumers Digest in
July 2011.
Existing subscribers may order additional products or services from us. When they do this, we typically have one of our
local field service technicians perform the installation at the subscriber's home. Typically, the subscriber is billed for a trip
charge, the cost of the products installed and their RMR increases for the additional service offerings. In 2012, 58% of new
subscribers selected additional services beyond Interactive Security.


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Competitive Strengths
Large, Growing and Economically Resilient Industry
According to Barnes Associates estimates, the market for monitoring and related residential electronic security services was
over $19 billion in revenue in 2012 and has grown every year for the past 12 years, with a 7.3% CAGR from 2000 to 2012. We
estimate the penetration rate for this market was approximately 19%, as of December 31, 2012. This market is characterized by
stable revenues from contractually committed recurring monthly payments and has proven to be recession-resistant through the
last two economic downturns.
In addition, we believe we were among the first to market in the rapidly growing and underpenetrated home automation
market, which enables subscribers to remotely access and control security, HVAC, lighting, automatic door locks, small
appliances and video surveillance using a smart phone application or a web browser. ABI Research estimates the total number of
North American subscribers of home automation services provided by home security companies will grow from approximately
434,000 in 2010 to over seven million by 2016 and total annual North American revenues from these services to increase from an
estimated $261.0 million in 2010 to almost $3.9 billion in 2016. We believe that our experience as an early entrant into the home
automation market and our innovative products and services make us well positioned to capitalize on this opportunity.
Leading Industry Player with Proven Operational Performance
We are one of the few residential security solutions companies in North America that generates substantially all of its
revenue organically from a fully integrated model that encompasses all aspects of the subscriber relationship, including sales,
installation, servicing and monitoring. This approach allows us to deliver a consistent, quality subscriber experience. We believe
this results in a strong adoption rate (58% in 2012) for service packages beyond Interactive Security and attrition rates at or
below industry averages. We also enhance the subscriber experience through proven operational performance. During the nine
months ended September 30, 2013, our average response time to alarms was approximately 10 seconds from the time our
monitoring stations received the signal. By enhancing the functionality of our offerings and introducing innovative new services
packages, we drive subscriber usage, with 71% of our surveyed subscribers in 2012 indicating use of their system at least once
per week, which we believe contributes to higher customer satisfaction and lower attrition.
Differentiated Sales Model with Highly Variable Cost Structure and Attractive Subscriber Economics
We have historically generated over 85% of our new subscribers through our direct-to-home sales channel. Our direct-
to-home sales operation is typically comprised of between 2,000 and 2,500 sales representatives who benefit from our recruiting
and training programs designed to promote professionalism and sales productivity. Each year between April and August, our
sales teams travel to approximately 100 locations throughout North America to sell our service packages. Because expenses
associated with our sales force are directly correlated with new subscriber acquisition, we avoid a large fixed cost base and are
able to deploy a flexible go-to-market strategy every year. A substantial portion of the cost to acquire a new subscriber is
variable. We believe our sales model allows us to originate subscribers at a lower net subscriber acquisition cost (as a multiple
of RMR) and achieve a higher adoption rate of new service packages compared to our competitors. We estimate that our net
subscriber acquisition cost was in the $1,600 to $1,650 range in 2012, which represented approximately 28 times our average
RMR per new subscriber added. Once the initial investment is made, we experience predictable recurring revenues and cash
flows from contractually committed monthly payments, resulting in an unlevered IRR of approximately 24% (including the impact
of estimated attrition).
High-Quality Subscribers Result in Lower Attrition
Because attrition is strongly correlated with FICO scores and customer satisfaction, we focus on creating a high-quality
subscriber portfolio and providing those subscribers with service packages that result in higher


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usage rates. Our compensation structure rewards quality subscriber generation by tying compensation to factors such as FICO
scores and payment type that have historically reduced attrition. We have enhanced our underwriting criteria since 2007,
increasing our average FICO score at origination from 685 in 2007 to 708 in 2012, and reducing sub-600 FICO score subscribers
from approximately 11% of total originations in 2007 to approximately 2% in 2012.
Robust Cash Flow Characteristics
We generate positive contractual and recurring operating cash flows. Approximately 83% of our revenues for the Pro Forma
Year ended December 31, 2012 consisted of contractually committed recurring revenues, which have historically resulted in
consistent and predictable results. We choose to reinvest our cash flows in the generation of new subscribers. The direct-to-home
sales model is characterized by a highly variable and discretionary cost structure, which allows us to quickly scale our sales
efforts up or down while relying on our existing base of approximately 803,000 subscribers to generate resilient and recurring
cash flows. Our low attrition and net subscriber acquisition costs have resulted in lower aggregate costs incurred to replace
churned subscribers compared to historical industry rates of attrition and subscriber acquisition costs, based on third-party
estimates. Additionally, as a result of our up-front billing of monitoring fees and high usage of electronic and credit card payment
methods, we generally operate with negative working capital, which provides for a source of cash as we grow revenues.
Furthermore, substantially all of our subscriber acquisition costs have been tax deductible in the year incurred and, as of
December 31, 2012, we had significant net operating losses of approximately $846.4 million in the U.S. and $24.8 million in
Canada available to minimize any future tax burden.
Strong Platform for Growth
We have established a history of capitalizing on our platform to offer new products and service packages, as evidenced by
our launch of home automation in 2011. The innovative products and service packages we offer have enabled us to increase
average RMR per new subscriber from $44.50 in 2009 to $57.59 for the Pro Forma Year ended December 31, 2012, while
generally not raising the prices for individual service packages during this period. Going forward, we anticipate numerous
opportunities to capitalize on our business model and existing technology platform due to the low incremental cost to drive future
growth while maintaining attractive margins. We plan to achieve this through continued market penetration, increased inside sales,
as well as commercial end market and international expansion. We recently expanded our business to New Zealand and have also
identified Australia as a potentially attractive geography in which to continue replicating our sales model.
Proven and Experienced Management Team
Our management team has a proven record of strong growth and operational excellence and, as a result of their leadership,
we have successfully grown revenue and total RMR every year since 2006. Our CEO, Todd Pedersen, founded the Company in
1999. Mr. Pedersen is a visionary leader who encourages a highly entrepreneurial culture that fosters innovation. Our
management team has an average of over 15 years of experience in high growth or large public companies. In connection with the
Transactions, employees and management have invested $155.2 million (a portion of which was used for the Investors'
acquisition of Solar), which is a significant investment in the Company.
Our Strategy
Commitment to Customer Service
We offer a fully integrated subscriber experience as sales representatives, customer service representatives and installation
technicians work closely together to provide the subscriber with an integrated process from initial contact to daily use. We
believe our field service technicians and customer service representatives deliver a


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